Why Are We Still Paying Fidelity To Manage Our Money?

When I was a kid and had hair, one of my first jobs after college was working for a small P.R. firm in Chicago that handled local publicity for Warner Bros., Paramount and a few of the smaller Los Angeles-based movie companies. Pre-Internet, the Hollywood studios would pay local agencies to place ads for their movies in the local press because local agencies had relationships that could secure better ad rates.

On one fateful Friday afternoon, the boss had a meeting and asked me to go to the bank to deposit a few checks.

“You know how to deposit checks, right?”

“Of course I do.” 

“Alright. Don’t make any stops. And come right back with the deposit receipt.”

I remember getting into the elevator, unzipping the small case and rifling through the checks. The one from Warner Bros. was for $230,000. I had never seen a check that big in my life. I remember thinking for a second about cashing it and taking off to Mexico where no one would ever find me, or the money, and living a quiet life near the beach with goats and chickens even though I don’t like goats or chickens. And then I remember feeling nervous. Why was someone trusting me, even for a milli-second, with all this money? What if something happened to it? What if something happened to me? It was both thrilling and nerve wrecking. On the walk to the bank, everyone was staring at me because they knew I was carrying that check. The elderly woman I passed at the bus stop, no doubt a spy for an international drug cartel tracking my every move. The kid on the bike with the baseball cap, CIA for sure. I remember breathing a huge sigh of relief once the teller handed me a receipt, knowing the funds were safe and secure in the company’s account.

Fast forward 20 years. When I got married, my wife and I created a joint bank account and we brought all of our investment accounts under one roof at Fidelity. I had become a student of investing and liked to manage my own money while my wife liked to “let the pros handle it” because she didn’t have time to run a business and invest. Because we were newlyweds, and because money can cause huge problems in a marriage, I never broached the issue. If I started managing the money my wife made from her first business and lost some of it, that would be bad. So I left her account alone. But the more I started to look into it, the more annoyed I became that her managed account wasn’t performing better. In particular, it wasn’t beating the S&P 500. And not only was it not beating the S&P 500, it wasn’t coming close. Plus, they were charging us close to 1% annually to manage the account. Here’s what the numbers look like over the past 10 years. The “Managed Account” is the one managed by Fidelity and the “Roth IRA” is my own retirement account.

For context, we went through the risk profile assessment where the financial representative asks you how much risk you want to take and we were at a 9 meaning the majority of our money was in stocks with whatever small amount leftover in bonds or cash. As you can see, over the last decade the managed account has underperformed the S&P 500 by a lot. If we’d just put that money into a Vanguard S&P 500 Index Fund, we’d have more than double the amount of money we currently have in the account. Of course hindsight is 20/20 but the question is why haven’t I moved that money yet? I can think of a few answers.

1. I’m lazy. There’s a bunch of paperwork involved. We have to sell all the assets in the account, move them into cash and then reinvest them. It feels like a big hassle.
2. The S&P 500 is at an all-time high. Wouldn’t it be better to make this move after a market correction? Of course timing the market is a fool’s game , and we’d be investing with a 15-20 year horizon given our current age and retirement penalties for taking money our early, but I’d hate to do it after the last decade’s run.
3. It’s incredibly self-defeating but a part of me likes the ability to compare Fidelity’s managed portfolio to my own and the Index and know that I’m outperforming both.
4. It’s money my wife made. And even though we share all our money and there is no more ‘her money’ and ‘my money’ I still have an underlying fear that if I start managing it and we go into a recession or a depression and suffer a lost Japan-like decade, I will be responsible for losing some of what she earned.
5. It’s a bit of a hedge. In a down market, the managed account will likely lose less. Again, I know that makes little sense with a 15-20 year horizon but in the immediate future it doesn’t feel horrible.

Someday, I will stop paying Fidelity to manage that account. I swear I will.